Asia Bond Monitor - June 2013

Reviews recent developments in East Asian local currency bond markets along with outlook, risks, policy options. Covers the 10 members of the ASEAN plus the People’s Republic of China; Hong Kong, China; and the Republic of Korea.

The East Asian economy continued on its path of gradual recovery during the first several months of 2013, supported by a more optimistic investor outlook and improvements in major financial market indicators, including falling bond yields and gains in most stock markets. However, the region's currencies have followed divergent paths since the beginning of the year.

Credit default swap spreads in the region remained relatively stable in the first quarter of 2013, reflecting global investors' increasing confidence as fears of a eurozone breakup receded and credit default swap spreads for European countries declined. Emerging market sovereign bond spreads also declined on the back of growing global investor confidence amid the strong performance of the US stock market in recent weeks.

Bond yields in advanced countries continued to trend downward in first quarter of 2013, and recently bond yields in the peripheral countries of the eurozone have also been declining. Meanwhile, Japanese long-term bond yields fell as the Bank of Japan stepped up efforts to meet its 2.0% inflation target with increased bond purchases.

Highlights

Some highlights from this issue of the Asian Bond Monitor:

The quarter-on-quarter growth rate for emerging East Asia's local currency bond market in 1Q13 was 2.9%, slightly less than the 3.0% posted in 4Q12, as the region's bond market reached US$6.7 trillion in size.

The most rapidly growing markets on a quarter-on-quarter basis in 1Q13 were those of Viet Nam (20.8%); Indonesia (5.9%); Singapore (5.1%); Hong Kong, China (3.6%); the Republic of Korea (3.1%); and the People's Republic of China (PRC) (3.0%).

The two most rapidly growing corporate bond markets on a year-on-year basis were those of the PRC and Indonesia, which are the largest (US$1.1 trillion) and one of the smallest (US$20 billion) in the region, respectively.

Government bond yields have shifted downward since the end of 2012 in most markets on the back of moderating inflation and mostly unchanged policy rates. The only exceptions to this were Hong Kong, China; Indonesia; and Singapore where government yield curves have shifted upward for most maturities since the beginning of the year due to rising inflationary concerns.

The Asia Bond Monitor reviews recent developments in East Asian local currency bond markets along with outlook, risks, and policy challenges. It covers the 10 members of the Association of Southeast Asian Nations (ASEAN) plus the People's Republic of China; Hong Kong,China; and the Republic of Korea.

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